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A short circuit in power puzzle GOVERNMENT: No solutions are in sight from arena's best minds -- and there's no going back.

August 27, 2000

By DANIEL M. WEINTRAUB The Orange County Register

SACRAMENTO -- They're stumped.

The governor. The Legislature. The staff. Even the high-paid minds under contract to the special-interest groups.

Nobody in the Capitol seems to know how to get California out of the mess created when the state deregulated the electricity industry four years ago.

There's plenty of sympathy for 100,000 Orange County residents who are among the first to see deregulation up close and personal. But no one has yet offered any solution to a crisis that has nearly tripled electricity bills in the past year.

The sad fact is, there may not be an answer.

The Legislature is considering a measure heralded by some as relief. But it simply postpones until another time the soaring electricity bills that are causing so many problems today.

Also being drafted is a measure to speed the construction of new power plants. But the effects of that bill, if it passes, won't be felt for months, perhaps years.

Why, many Orange County residents are asking, don't they just put things back the way they were?

The short answer: They can't.

In the old days, the public utilities owned the power plants.

When they needed a new plant, they would ask the Public Utilities Commission for permission to build it. If the PUC thought the idea was wise, the commission would give its OK and set rates at a level providing the utility a modest but guaranteed profit.

But when the state deregulated electricity in 1996, the idea was to increase competition. That meant getting the monopoly utilities out of the business of generating power and throwing the field open to all comers. SDG&E and the other utilities were encouraged to sell off their power plants and limit their business to transmitting electricity, not creating it.

Private companies now own many of those plants. The state can't order SDG&E to buy them back. And the state can't order the new owners to sell them. The federal government can regulate the price those firms charge for their power but has so far been reluctant to step in.

"You can't turn back the clock,"said state Sen. Dede Alpert, D-Coronado. "I can't just pass a bill and say re-regulate, and it will be fine again. It won't be."

The state could build its own plants. Or use its clout to buy power on the cheap with long-term contracts and pass it along to retail customers. But so far neither idea has won much support in the Capitol.

The short-term plan now moving through the Legislature would reduce summertime electricity bills for SDG&E customers. The PUC already has approved a similar plan. But the price of power isn't dropping. Consumers will simply be forced to pay for it later. The tab could total $1,000 or more per household after four years under the version contemplated by the Legislature.

Why can't someone else pay?

The obvious choice would be the utility. Many ratepayers and politicians are upset that SDG&E simply passed along high energy costs to its customers without trying to sign advance contracts for cheaper power.

But the company was playing by the rules it was handed. One could even argue the utility was doing exactly what the state told it to do. Making SDG&E pay for the state's mistake strikes many as unfair.

"It's not legal," said Carl Wood, a member of the Public Utilities Commission and a strong opponent of deregulation. "To force them to sell electricity for less than it costs them to buy it is considered a taking, and it's prohibited by the Constitution.

"We could take that action, and San Diego Gas & Electric would be in court the next morning. We'd just inflate people's hopes and then dash them. We'd look like heroes for a few minutes but it wouldn't be an honest promise to people."

Besides, even such a scheme could pass legal muster, it might not be possible economically to force the utility to eat the cost. The company is worth less than $500 million. That's less than half of what the difference might be between the wholesale price of electricity and the lower price the utility will be required to give its customers for the next four years.

Already circulating in the Capitol is a report from a Wall Street bond-rating firm, Standard & Poor's, suggesting that SDG&E's credit worthiness would be downgraded if the Legislature even contemplates sticking the utility with the bill.

"It would bankrupt us," said Bill Guiles, SDG&E's chairman and chief executive officer.

OK. How about the taxpayers? Because the state created the problem, the state can fix it. Some have suggested using part of a big and growing budget surplus to reimburse Orange and San Diego county residents for the high energy bills.

Assembly Republican Leader Scott Baugh of Huntington Beach has proposed a modest version of this plan and says he'd be willing to go further. But nobody seems to be taking him seriously.

A spokesman for Gov. Gray Davis says he's not interested. And Democrats in the Legislature are also down on the idea. Their question: Why should taxpayers all over California be asked to pay one region's utility bills?

"There might be more of a case for that if the whole state were in the same position," said Assemblyman Fred Keeley, D-Boulder Creek.

Keeley is among those looking at what the state can do to bring the supply of power into balance with the demand, which might help ease prices. Among the solutions being eyed are small "peaker plants" that operate only when demand is high and by next summer could be used to relieve some of the pressure during heat waves.

But even if the state waives environmental rules to allow such plants to be built quickly, there is no guarantee the power they produce will be sold to Californians.

And even if new, larger plants are built, the electrical grid would also have to be expanded -- or the new power may simply supplant the old, with no net gain.

This is the kind of problem that politicians hate: There are no quick fixes, at least not one that could win a majority in the Legislature.

Former San Diego Mayor Maureen O'Conner, who has taken up the cause on behalf of consumers in that city, has taken of late to suggesting that maybe the best course might be to subject the rest of the state to the same rules now governing SDG&E customers.

The Legislature is not likely to do that on its own. But the law already in place allows the price freeze now protecting customers in the rest of the state to be lifted in 2002 at the latest.

Then south Orange County residents might finally get some help.

Until then, however, it appears they will have little choice but to muddle through.

-- Martin Thompson (, August 27, 2000

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